Every year we think of gifts to give our children or grandchildren during the holiday season. Your children or grandchildren may already have many of today’s coolest gifts, ear buds, beats, iWatch, sunglasses or even a Canada Goose jacket. What to do, what to do???
This year, think about a gift that keeps on giving, funds for educational expenses. Many of my clients are already familiar with 529 Plans, but did you know you can also use a trust for educational expenses?
A 529 Plan is a tax-free educational savings plan that grows tax-deferred as longs as funds are ultimately used for educational purposes. With new tax law changes, the funds can be used for elementary, middle and high school tuition. While a 529 Plan is primarily invested in mutual funds, there are limitations on the amount of funding, the types of funds and, unfortunately, there is a ten percent penalty when assets are used for non-educational expenses.
A Trust, however, offers more flexibility while the grantor can still dictate how the funds are to be used. For example, create a trust for the specific use of college or post graduate expenses, to fund a business or even buy a home. Another advantage of the Trust versus the 529 Plan is the use of private investments in trusts. The Trust, while not income tax-free, may provide greater investment returns over time that outweigh the more limited returns and income tax benefits of a 529 Plan.
Both a 529 Plan and a Trust offer the donor an investment vehicle to benefit children over time. Used in combination, high net worth clients may be able to achieve multiple objectives for your children or grandchildren’s future. Please contact me at 570-970-9700 or 215-278-4767 or firstname.lastname@example.org to determine how to best use a 529 Plan and/or Trust as a gift that keeps on giving.